Foreign Currency and SPC

Question 1

Why might a strong U.S. dollar be problematic for exports?

Answer 1

It makes U.S. goods more expensive for foreign buyers, reducing competitiveness.

Question 2

Why might a weak U.S. dollar benefit U.S. companies?

Answer 2

It makes exports cheaper and more attractive to foreign buyers.

Question 3

What is one major driver of increased supply chain complexity?

Answer 3

Globalization and outsourcing to numerous international suppliers.

Question 4

What is a “peg” in currency exchange?

Answer 4

A fixed exchange rate between two currencies maintained by a central bank.

Question 5

What is currency depreciation?

Answer 5

A decrease in the value of one currency relative to another.

Question 6

What is the “spread” in currency exchange?

Answer 6

The difference between the bid rate and the offer rate.

Question 7

What is the Big Mac Index?

Answer 7

An informal way to measure Purchasing Power Parity using the price of a Big Mac.

Question 8

What is hedging in currency management?

Answer 8

Protecting against exchange rate risk using strategies like forward contracts.

Question 9

What are the two main accounting standards globally?

Answer 9

GAAP (US) and IFRS (International).

Question 10

What does the term “functional currency” refer to?

Answer 10

The main currency a subsidiary uses in its daily operations.

Question 11

What are the recent trends in global supply chains?

Answer 11

Nearshoring, friendly shoring, reshoring, supplier diversification.

Question 12

What is the difference between floating and fixed currencies?

Answer 12

Floating currencies fluctuate with the market; fixed currencies are pegged to another currency.

Question 13

What is the impact of inflation on interest rates?

Answer 13

Higher inflation generally leads to higher nominal interest rates.

Question 14

What is a key reason firms started outsourcing in the 1980s?

Answer 14

It became feasible due to lower labor costs in countries like China and India.

Question 15

What are the challenges of global supply chains?

Answer 15

Language barriers, currency differences, time zones, tariffs, and reliance on many suppliers.

Question 16

What is outsourcing?

Answer 16

Delegating certain activities (e.g., manufacturing, customer service) to external firms, often abroad.

Question 17

What has led to globalization of supply chains?

Answer 17

Increased geographic scope, outsourcing, and focus on core activities.

Question 18

What is the International Fisher Effect?

Answer 18

Exchange rates should change in the opposite direction of interest rate differences between two countries.

Question 19

What tools does Apple use in its supply chain management?

Answer 19

IBM Watson, Blue Yonder, SAP IBP, and custom AI solutions.

Question 20

What is the purpose of accounting in international firms?

Answer 20

To report financial data for decision-making and regulatory compliance.

Question 21

How do currency fluctuations affect accounting?

Answer 21

They impact transaction values and the consolidation of foreign subsidiaries.

Question 22

What is the lead strategy?

Answer 22

Paying or collecting early based on expected currency depreciation/appreciation.

Question 23

What is the lag strategy?

Answer 23

Delaying payments or collections based on favorable expected currency movements.

Question 24

Why is managing currency important in international business?

Answer 24

Currency fluctuations affect cost structure, competitiveness, and profitability.

Question 25

What are the key activities in supply chain management?

Answer 25

Distribution/logistics, sales forecasting, procurement/purchasing, and production planning.

Question 26

How many currencies are recognized globally?

Answer 26

180 (recognized by the UN).

Question 27

What are examples of countries using the U.S. dollar?

Answer 27

Ecuador, El Salvador, Zimbabwe, Puerto Rico, Marshall Islands.

Question 28

What is nearshoring?

Answer 28

Outsourcing to countries geographically closer to the home market.

Question 29

What is currency appreciation?

Answer 29

An increase in the value of one currency relative to another.

Question 30

What is managed floating exchange rate policy?

Answer 30

Currency fluctuates but with active government intervention.

Question 31

What is the significance of Apple’s supply chain strategy?

Answer 31

Geographic diversification, vertical integration, and advanced AI use for risk management.

Question 32

What happens if a foreign currency weakens before payment is made?

Answer 32

The firm pays less in its home currency and records a foreign exchange gain.

Question 33

What is the difference between GAAP and IFRS?

Answer 33

GAAP is rules-based (U.S.), IFRS is principles-based (global standard).

Question 34

What does the term “repatriate” mean in finance?

Answer 34

Bringing foreign earnings back to the home country.

Question 35

What are the two methods of financial consolidation in accounting?

Answer 35

Current rate method and temporal method.

Question 36

What is the Bandwagon Effect in currency markets?

Answer 36

When investors follow others in buying a currency, pushing its value up further.

Question 37

What is vertical integration?

Answer 37

A strategy where a company controls multiple stages of its supply chain.

Question 38

What is FASB 52?

Answer 38

U.S. rule requiring foreign-currency transactions to be recorded at the spot rate at the time of the transaction.

Question 39

What is a forward contract?

Answer 39

An agreement to exchange currency at a fixed rate at a future date.

Question 40

What are the main issues in international supply chain management?

Answer 40

Complexity, foreign currencies, tariffs, geopolitical risks, and outsourcing.

Question 41

What is the difference between offer and bid rate?

Answer 41

Offer rate is what banks sell at; bid rate is what they buy at. The difference is the spread.